Financial News

City Investors Court Lawyers In Essar Fight

Leading City investors have approached lawyers to assist their battle against a potential delisting of Essar Energy, stoking an increasingly fractious tussle over the future of the India-based oil refiner.

Sky News has learnt that several major institutions are in talks with Skadden Arps Slate Meagher & Flom, one of the world's top corporate law firms, as Essar's founders attempt to take the company private.

The possibility that investors such as Capital Research Global Investors and Standard Life Investments will appoint their own legal advisers underlines the acrimony surrounding the buyout proposal lodged by Essar Global Fund Limited (EGFL), the vehicle of Essar Energy's founders.

Capital and Standard Life, which between them own about 7% of Essar Energy, are furious at the 70p-a-share bid from the Ruias which was tabled last month.

EGFL, which owns 78% of Essar Energy, has until 5pm on Friday to announce whether it will increase or abandon its offer.

Insiders said on Thursday that the Ruias were considering seeking a 28-day extension to that deadline from the Takeover Panel, which regulates mergers and acquisitions in the City.

A letter sent by EGFL to the committee of independent directors earlier this week is understood to have said that the vehicle reserved its right to make a higher offer but did not indicate a revised price.

The Ruias' vehicle has yet to spell out the structure or terms of an offer, although it is theoretically possible for them to compulsorily purchase the shares held by minority investors under certain scenarios.

That possibility further could threaten to undermine London's credibility as a listing venue for overseas companies, one of the principal successes of the City in recent years.

It is unclear, though, what institutional investors could do to prevent such a delisting.

Skadden Arps has not yet been formally appointed by the investors and another law firm could end up representing them, a source said.

The Association of British Insurers is also involved in the discussions amid concerns about the protection being afforded to minority shareholders.

Last November the Ruias said they believed that Essar Energy shares were cheap even while they were trading at more than 90p, a fact which has stoked investors' anger over the attempt to acquire their interests for 70p-a-share.

"EGFL believes that the shares of Essar Energy represent exceptional value and will therefore only sell such minimum number of its shares in the company to enable Essar Energy plc to meet the minimum free float requirement," EGFL said last autumn.

The Ruias are proposing the takeover less than four years after floating the oil refiner and power generator in London at six times the price they now want to pay.

Last month, SLI denounced the move as "cynical opportunism".

David Cumming, head of equities at the fund manager, said it was "a calculated attempt to deprive minority shareholders of the substantial future upside in Essar Energy's valuation".

The independent directors of Essar Energy are being advised by JP Morgan, one of the investment banks which oversaw the company's listing in April 2010, and Greenhill.